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17 November 2017
The Italian courts, as well as scholars and legal practitioners, have debated usury in banking contracts for many years – in particular, the concept of supervening usury. Until recently, it was unclear whether interest stipulated below the usury threshold at the time of contract, but exceeding such threshold at the time of payment (due to a fall in the reference rates), was usurious.
On October 19 2017 the Supreme Court finally addressed this issue in Decision 24,675, which ruled out supervening usury entirely. Banks must test compliance with usury rates only when a contract is entered into, irrespective of when payments are made thereunder.
Under Italian law, penalties for usurious interest are twofold: on the one hand, no interest whatsoever is due and the borrower has the right to claim the reimbursement of all interest amounts already paid to the lender in accordance with Article 1815 of the Civil Code. On the other hand, criminal penalties apply under Article 644 of the Criminal Code.
The threshold for usury is set on a periodical basis, by reference to the then-prevailing market rates, in accordance with Law 108/1996.
In a scenario in which market rates decline (as was the case in recent years), interest can be below the threshold at the outset of the financing, but result in an excess at a later stage. In this context, Decree-Law 394 of December 29 2000 clearly states that interest is deemed usurious if it exceeds the maximum threshold set by the law at the time that the interest is agreed by the parties, "independently from the time of its actual payment".
As the wording of the law was not entirely clear, the issue of supervening usury was raised on several occasions before the Italian courts in respect of contracts entered into before and after the enactment of Law 108/1996 and Decree-Law 394/2000, resulting in two conflicting views.
According to a number of decisions, Decree-Law 394/2000 excluded only the application of the draconian criminal and civil penalties in the case of supervening usury. Nonetheless, interest rates should have been adjusted (ie, lowered) from time to time in order to align with the then-applicable usury threshold, through an automatic replacement of the usurious interest clause.
According to other decisions, Decree-Law 294/2000 was to be taken literally – compliance with the usury threshold was relevant only at the time of execution of the contract, regardless of the time of payment.
With Decision 24,675, the Court of Cassation endorsed the most literal and lender-friendly approach.
If the parties agree upon an interest rate which complies with the usury threshold when the contract was entered into, any subsequent change to the reference threshold is irrelevant. The lender is duly entitled to claim and receive from the borrower payment of the full amount of interest as stipulated in the original agreement, without any reduction or automatic adjustment. Any such claim is deemed bona fide and in full compliance of the agreement and the law.
This ruling applies to contracts entered into both before and after the enactment of Law 108/1996 and Decree-Law 394/2000.
For further information on this topic please contact Andrea Giannelli or Vittorio Pozzi at Legance Avvocati Associati by telephone (+39 02 89 63 071) or email (email@example.com or firstname.lastname@example.org). The Legance Avvocati Associati website can be accessed at www.legance.com.
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